Friday, 26 June 2020

Five Eyes; but no 20/20 vision

Since the beginning of the year, the world has been gripped in an atmosphere of constant crisis. With Covid-19 being declared a pandemic and resulting in a recession caused by non-financial factors, enemies of democracy have taken a strategic path to attack the western world. The response has been muted in most cases, and in Canada’s case it has been quasi subservient.
In addition to the pandemic, the Trump Presidency is facing turmoil on many fronts. Early this year in a purely political move, the Democrats impeached the President, with dubious accusations of ‘abuse of power’ and ‘obstruction of justice’ in an attempt to unseat a duly elected president. Ever since his election, he has been hounded by his opponents, and a bias media. To add to his problems the tragic death of George Floyd at the hands of a rogue racist policeman, has resulted in protests against racism and a quasi-civil war.  In an election year this state of chaos has given the enemies of the United States a perfect environment to challenge and conduct attacks on different fronts.
It is said that while the cat is away the mice will play With Trump being undermined by his domestic opponents; the forces of evil are ready to take advantage. North Korea, has resumed its skirmishes with the South in an attempt to garner attention. Iran has declared that they have more nuclear material enough to be close to producing a nuclear bomb. Russia and China are ratcheting their tactics to cause problems in many parts of the world. China has attacked India’s borders, while Russia is increasingly invading the allies’ air space. China has affected a massive cyber-attack on Australia, and these are only a few of the many geopolitical threats.
The ‘Five Eyes’ (FVEY) organization is an intelligence alliance made up of the United Kingdom, United States, Australia, New Zealand, and Canada. It is the foremost known intelligence alliance in the world. The members monitor and share information about espionage, and they also spy on each other and share information to circumvent domestic regulations on their own citizens. In recent years one of the biggest concerns of the organization has been the expansion of Huawei, the Chinese telecom giant at the forefront of 5G development. With Huawei’s connections to the Chinese Government it is feared that the integrity of networks in the alliance countries may be compromised if they choose to use the system. The U.S has been strongly opposed to the use of Huawei as a provider of 5G technologies, and it has caused frictions in the telecom world and trade with China. Furthermore, the 2018 arrest in Vancouver of Huawei executive Meng Wanzhou facing fraud charges for allegedly violating U.S. sanctions on Iran and avoiding extradition to the U.S has exposed the retaliatory tactics of the Chinese government.
The Chinese arrest of two Canadians, Michael Kovrig and Michael Spavor, is seen as a pure retaliation and hostage taking to enable the release of Meng Wanzhou. Not to be left out of the attack on the West, Russia arrested and charged another Canadian Paul Whelan with spying, once again trying to negotiate a spy swap with the U.S.
Since the Five Eyes alliance is all about monitoring online activities of internet users, there is a need for users to keep their online sessions safe. But it seems that in recent days there has been a complete failure in identifying the real threats to western democracy. The riots and protests in the United States and other parts of the western world by anarchists, like Black Lives Matter and Antifa, is no doubt being coordinated through social media. Given the nature of the ‘new cold war’ it would be remiss to think that foreign ‘bots’ are not at work to foment these riots.
What is concerning is that western allies are paying very little public attention to the real nature of the protests, which have completely ignored their original basis – the death of George Floyd. These riots have now included the destruction of statues of historical figures, and demands to re-write history. Governments around the world are being coerced into abandoning law and order to appease a mob which originally had legitimate grievances against racism but which now has morphed into a rebirth of Bolsheviks, and communism supporters, too often supported by Liberal politicians for selfish gain at the ballot box.  The destruction and demands are the result of a generation of protesters being indoctrinated by a Liberal education system. Even politicians and former diplomats, mostly of the ‘progressive persuasion’ are now even suggesting that we should give into blackmail through hostage taking by foreign governments. Ironically, Canada’s PM Trudeau made the decision not to give in to these suggestions. It is not that he was doing the right thing but that it is the common sense thing to do, given that for the past two years he has been absent on foreign affairs while pursuing his selfish goal of getting a seat on the U.N’s Security Council.
The FVEY has been operating under a cloud of political correctness, cancel culture and soft diplomacy while the enemies of democracy have been operating a covert war through cyber space to undermine the very fabric of freedom of speech and democracy. Social media is now fast becoming the weapon of choice for our enemies, and it seems that they are winning. We are now living in a perfect storm which could destroy years of relative world peace. The hate and contempt for Trump, because of his desire to challenge the status quo, has seen even members of his party abandon him on major policies. The danger is that the world may descend into a state of anarchy and move the free world towards more government control and cede national sovereignty to a disgraced and dysfunctional United Nations. Is that the desired vision for the future?

Saturday, 30 May 2020

Calgary Council’s inability to cut taxes.

Calgarians have received their 2020 tax bill, and this year it is accompanied by a letter from the Mayor to explain how the tax works. Some of his claims may not be called lies, but they are certainly an opportunity for Calgarians to draw the wrong conclusions.
The economic hit caused by Covid -19 has been more severe than the last recession. The last recession was caused by a financial disaster in the banking sector, the disruption was bad but not a severe as the one we are experiencing today. With Covid-19 it has been one that has disrupted the very fabric of society. People have lost their, jobs, businesses have closed, some for ever and governments have accumulated massive debts to finance the economic collapse. These debts will have to be repaid in the future and taxes will have to go up to pay for the excesses of governments who used the crisis to implement some of their political agendas. Sacrifices will have to be made, and some governments realize that, and will adjust, but that is not the case for Calgary.
In Calgary the current Council has been made aware of their excesses long before the pandemic. Yet they never listened and continued to spend without any regard for risk management. The latest property tax increase of 7.5% comes over and above many increases in fees and utility rates. There is also the re-alignment of the tax burden between residential and business tax. This shift also increased the residential tax rate. While there has been a deferral and elimination of the penalty for late payment of taxes nevertheless that does not mean that the tax is reduced, it is just delayed. What of the businesses that have been closed for months and who may be closed forever. There is no tax rebate there.
What are questionable in the Mayor’s letter are the claims of savings amounting to $740m in cuts, and that the budget was increased by 1.5%. The reality is that the budget was increased by a lesser percentage but was increased nevertheless – this is not a saving. A real cut means that you reduce the total amount of the previous year’s budget, not increase it by a smaller amount. Furthermore, the City does not use the Consumer Price Index, they use the in-house concocted Municipal Price Index, so when they say that the tax increase is less that the rate of inflation, it is based on their index not the real inflation rate.
The other claim that the average increase per household will be $11.25 monthly or $135 yearly is another obfuscation. The fact is that most household have seen increases closer to $20/month or even higher. Council will tell you that this small increase is justified – as it is the equivalent of less than the cost of a daily cup of coffee. What citizens must realize is that the cost of this cup of coffee never decreases over the years. The only way to see a reduction in your taxes is a cut in total expenditure, but that is never the case in Calgary, in fact Council keeps adding more expenditure to the already long existing list.
While we must acknowledge that the current Market Value Assessment system is a factor in the problems experience by municipalities in Alberta, we must also recognize that when there is a clear reduction in the revenue base, a difficult decision must be made to make the appropriate reduction in expenditure to balance the deficit. Unfortunately for Calgarians, this decision has never been made. When the Mayor claims that Calgarians are charged among s the lowest taxes in Canada they forget to tell you that for 2020 Edmonton was able to have only a 2.5% residential tax increase , and freeze of property taxes for non-residential ratepayers.
To reduce the Calgary 2020 tax burden, Council had some alternatives. Councillor Farkas proposed to use the Sustainability Fund, Public Arts Fund and Corporate Welfare Fund to be used to rebate the residential tax, and a property tax freeze instead of the 7.5% tax increase. The motion was reluctantly seconded by Councillor Chu. But more importantly it was vilified by his colleagues and the vote for the tax increase was 13 for and 2 against. More importantly to justify their votes some Councillors claim that they actually voted against the budget – a real canard. A vote against a budget means nothing if ultimately you vote for a  tax increase based on that same budget.
With Covid-19, there are going to be some drastic changes to the economy. How business operate and how and where people work, as well as how services are delivered will cause disruptions that we have never seen before. While the private sector will adapt, I fear that the public sector will not, at least not in Calgary. The past is a prognosticator for the future, and given the performance of the current Council it is very difficult to see how things will change, to use the words of Councillor Sutherland, in my opinion it is quite clear that Council ‘has a limited skill set’.

Tuesday, 26 May 2020

Municipal Finances are not what they seem to be

Ever since my interview with Danielle Smith on April 28th, I have received a number of kudos and requests to elaborate on the City of Calgary Finances. Many listeners have asked me to explain the differences between a Budget and the Annual report.  While I am going to use the City of Calgary as an example, the comments can be applied to any municipality in Canada, since they use the same methodology and accounting standards to report their finances.
         The budget is a mere wish list, it is a plan, expressed in quantitative, usually monetary terms, using a modified cash basis, and covers a specified period of time usually a year. The City of Calgary does a 4 year budget. Each program’s objectives are translated into terms that correspond to the spheres of responsibility of the managers charged with implementing them. It is a list of proposed expenditures and is the basis for raising revenues to cover the costs and establish the taxation rate for the period. The budget is not independently audited.
          The Annual report, on the other hand, is a picture of the financial position of the City at a specific point in time usually December 31st.  It is the net worth statement of the organization and all items shown are recorded at their historic cost. The report is prepared using accrual accounting  as prescribed under Public Sector Accounting Standards  which recognizes economic events and  more accurately reflects economic reality. The final report is audited by an Independent Auditor
The differences in methodology and accounting standards, not only cause confusion for the ordinary citizen, but also enable politicians to obfuscate the real financial status of an organization.  These days every municipality is claiming poverty and either are demanding more funding from other levels of government or are busily seeking to expand their tax base, and increasing taxes to cover their large expenditures. A study by the C.D. Howe Institute in 2019 showed that 31 municipalities in Canada had accumulated surpluses of $11 billion.
Let us focus on Calgary 2019 Annual Report. When the results are republished in the newspapers, the details that I am going to use are never showed, and these are the figures that citizens should really care about.
         Accumulated Surplus $21,025B (2019), $19, 695B (2018) an increase of $1,330 B
         The Accumulated surplus of $21,025 B is made up of the following:
         Equity in Non-Financial Assets including Enmax and other Capital Funds $18,532B
         Reserves of $2,494B, including $426m in the Fiscal Satiability(Rainy Day) Fund
         Expenses $3,914B of which $1,980B were salaries and benefits
         Long-Term Debt $2,889B
The problems and confusion exist for several reasons, one that the budget and annual reports are produced under different sets of accounting standards. Then the reporting of annual results is published in a manner as to portray a rosy picture instead of details that will show the true and transparent picture of the financial state of the organization. So much so that after the interview, I received a stern comment from Councillor Davison’s Special Project Contractor, who was paid $18,000 in 2018, which proves how confused things are at City Hall, he wrote: “All of which has nothing to do with the 2019 annual report or the accumulated surplus which is mostly capital works. The city owns $87.4 billion in assets. Some are bound to increase in value… if you want to file a complaint with the ethics commissioner against city council members go for it”.
I don’t know if it is only the contractor who is confused or is it that Councillors are too, because these are the facts, the City does not own $87.4B in assets, Tangible Capital assets as at December 31st 2019 were $18,48B. The bigger issue is that acquiring capital assets requires funds that are borrowed or received from other levels of government. Maintenance of these assets requires operating costs. Since a municipality does not really produce any product the funds must come from taxes, and there is only one taxpayer even if the money comes from higher levels of government. As for the increasing value of City Assets; has anybody seen the City sell an asset at a profit and return that money to the taxpayer? May be once but not on a regular basis. There is the recent proof; ‘the bill to tear down the Saddledome will mostly fall to the city at an estimated cost of $12.4 million (the Flames’ contribution to the demolition will not exceed $1.5 million).
I have covered and wrote about Calgary’s City finances for over 20 years and have taught Public Sector Finance, now with The Institute for Public Sector Accounting, I contribute to the Daniele Smith show on QR770, and other media to hold Council accountable for their actions. I am concerned Calgarians do not get the full story and that perhaps even Councillors do not understand the ramifications of their decisions on budgets and financial matters. Voting against a budget does not mean anything if you vote for a tax increase resulting from the budget.
 In conclusion I would ask Calgarians and for that matter citizens of other municipalities to demand more transparency and accountability from their elected officials. What they tell you may not be what is real.

Friday, 22 May 2020

The New Cold War is here.

After the fall of the Soviet Union, and the end of the Cold War, the world breathed a sigh of relief. Unfortunately while the West look forward to peace and economic growth, they ignored the rise of China as a world threat, and in fact helped them to this place of power. How did China do it?
Globalization and the expansion of trade created wealth in industrialised countries. To do so many industrialised countries used the enormous pool of cheap Chinese labor to produce goods. As a means to encourage Chinese participation the World Trade Organization (WTO) granted China the status of ‘developing country’ and with it came many privileges. Furthermore China manipulates its currency to obtain and maintain a competitive advantage.  Since the country is governed by an authoritative regime, there is complete control of the economy. Industries are managed and operated by the State, and production is dictated by the goals of the Chines Communist Party.
Given the complete control of the economy, most if not all, contracts between western corporations and Chinese producers must have the imprimatur of the government. Hence delegations from western governments often visit China to make deals, resulting in more concessions to get access to the closed Chinese market while giving more Chinese access to western markets.  These trade deals gave China greater access to western technology, and they also became one of the greatest infringers of copyrights. Chinese counterfeits flooded western markets and they also used the power of government control to increase ‘dumping’   of many products, mainly steel.
Furthermore, the obsession with climate change brought a new dimension to the reliance on Chinese production. In an attempt to reduce their ‘carbon footprint’ in their countries to placate the environmentalists, many countries increase their shift from home manufacturing to production in China. This shift did nothing to improve Carbon emissions, but in fact just transferred it to China, which at the same time received preferential treatment in new climate change treaties. They can pollute but the western world has to pay for their use of fossil fuels and increase in CO2 emissions. So what is the result of all these concessions?
First the trade deficits between China and the rest of the world grew. More significantly the trade deficit between the U.S and China got completely out of hand. The reliance on Chinese goods meant that China was exporting more than they were importing. They started to accumulate foreign currencies and in fact became the second largest holder of U.S debt. With that came monetary power and the authoritarian regime started to do something that was not contemplated, but in fact ignored by the West. China started to invest heavily in developing countries.  Africa and South America   became targets and their resources were acquired and exploited. These investments did not only provide monetary, but also political influence in these countries, and provided support for China’s influence on many global organizations like the WHO, UNESCO and the like. These expansion polices were ignored, as the west turned a blind eye and continued to focus on the war in the Middle East and the rise of terrorism.
All the while, China and its ally Russia were playing a different game. Russia under Putin and his new found wealth from oil and gas, and Xi entered into an alliance to engage in proxy wars. While using their ‘veto’ powers on the U.N Security Council, they covertly supported war in different parts of the world. As Obama, obsessed with appeasement took a back seat, the new Cold War allies extended their involvement in the Middle East, and supported Iran in the failed Nuclear deal. China used its proximity and long-time relationship with North Korea to support the regime, and in fact encouraged Kim Jung Un to become a thorn in Trump’s administration. In the meantime China started building islands in international waters in the South China Sea and built bases which extended its military reach in the region.
Another factor for the growing Chinese geopolitical power is the use of Chinese immigrants and students in many western countries. Many immigrants to countries like Canada still have ties with the communist regime. As they invested in the western world they also gained influence in political and corporate arenas. Many huge corporations are now either controlled or are partners with Chinese investors who still report to the government. Huawei is one example, and the continued relationships between large tech companies and China is a growing threat.
 In Canada, the increasingly worrisome Trudeau government and his relationship with China, is cause for concern.  Not only is the inability for this government to confront the Chinese government, but it is the constant acceptance of the acquisition of resource and technology companies by Chinese entities that should raise a red flag.  China has acquired many Canadian companies for example TMAC Resources, Continental Gold, Asia Pacific marine Container, Nexen etc.  It is not the investment that we should be worried about, it is the investor. With an obsession to gain a seat on the U.N Security Council, Trudeau has virtually given up any semblance of protecting Canadian sovereignty.
In the United States, it is apparent that China has not only got a foothold in many universities but also in many tech companies. Google and Apple are so reliant on business on mainland China that they are reluctant to support Trump’s policy of re-alignment with the belligerent and combative Chines regime.
Trump has been criticized for many things, one of which I did not support- the use of tariffs to bring China to the negotiating table, in retrospect he was right. However, it seems that the Covid-19 pandemic has given him the unfortunate opportunity to gloat. Or was the pandemic a means of Chinese retaliation?  On the other hand, China has been exposed and placed itself in a defensive position that nobody could have visualized some 18 months ago.  As more details are coming out about China’s role in the pandemic, western countries and many smaller developing countries are reconsidering their relationship   vis-à-vis the autocratic regime and leader for life Xi.
China with the blind complicity of the western world has been preparing itself to dominate the world as it builds itself into a supreme   military power. They have stolen and continue to steal technology; they have coerced global organizations through bribes and massive funding of smaller countries to get votes at the international levels. If there is one thing positive about Covid-19, it is that it was able to expose the Chinese duplicity. Is the world going to recognize the rise of China as a threat, or are we going to coalescence around a dislike for Trump and continue on our merry way and increase our dependency on trade with China?  The west should bring back their manufacturing home or expand into South Korea, India and other free Asian countries.
The new Cold War is here, make no mistake about it. Russia will align itself with China. To counteract this dangerous alliance, NATO countries should expand their membership or the world will face a greater problem, than terrorism or climate change – economic collapse.